Company Law (Complete Revision Notes) by Muhammad Asif, ACA

Company Law – Revision Notes Chapter 19: Company
REVISION NOTES
CHAPTER
MUHAMMAD ASIF, ACA
ON
19
ICAP’S OFFICIAL BOOK
Company
LO # LEARNING OBJECTIVE REFERENCE
PART 1 – THE FEATURES OF A COMPANY

1.1 Comparison of Companies with other forms of Business
1.2 The meaning of separate legal personality
1.3 Limited Liability
1.4 Transfer of ownership and perpetual succession
PART 2 – TYPES OF COMPANIES
2.1 Definition of Company and Body corporate
Companies limited by shares, Companies limited by guarantee
2.2
and Unlimited companies
2.3 Private company and Public company
2.4 Public listed company and Un-listed company
2.5 Holding company and Subsidiary company
PART 3 – ASSOCIATION NOT FOR PROFIT
3.1 Association not for profit
PART 4 – SECURITIES & EXCHANGE COMMISSION OF PAKSITAN
4.1 The Commission
4.2 Registrar
4.3 Court
1 Muhammad Asif, ACA

PART 1 – THE FEATURES OF A COMPANY
LO 1.1: COMPARISON OF COMPANIES WITH OTHER FORMS OF BUSINESS:

There are three types of business organizations i.e.
1. Sole-proprietorship.
2. Partnership.
3. Company.
Following are legal differences between Company and Other forms of business:
Sole-proprietorship/ Partnership Company
Separate Legal No separate entity from its owners. Company is a separate legal personality
Status distinct from its members.
Liability of Unlimited i.e. owners are personally Liability is usually limited.
Owners liable for the debts of business.
No Perpetual Succession (i.e. Sole- Perpetual Succession (i.e. it is created by
Perpetual
proprietorship/Partnership end when process of law and is ended by process of law).
Succession
their owners die).
Separation of Owners can manage affairs of business. Board of Directors manage affairs of business;
Ownership & a person who is not a director cannot take part
Management in management of company.
Maximum No. of – 1 (for sole-proprietor) – 50 (for private company)
owners/members – 20 (for partnership) – unlimited (for public company)
Transferability of Ownership cannot be transferred Ownership can be transferred without
ownership without dissolution of business. dissolving a company.
Inspection of Public cannot inspect annual accounts. Public can inspect annual accounts of a public
Annual Accounts company.
CONCEPT REVIEW QUESTION

What are the key differences between companies and other forms of business organization?
(4 marks)
(Malaysian Institute of Accountants – March 2012)
LO 1.2: MEANING OF SEPARATE LEGAL PERSONALITY:
Separate Legal Entity Concept:

This concept states that company is an “artificial person” and has a
separate legal status distinct from its owners and directors.
Effects of Separate Entity Concept:

Separate Entity Concept means that:
1. A company can enter into business agreements and transactions with its own name.
2. A company, itself, owns assets.
3. A company, itself, owes liabilities.

4. A company can sue and be sued in its own name.

5. A company, itself, is responsible if it breaks the law.

A company duly registered under the Companies Ordinance, 1984 is a separate legal entity and a
distinct person from the shareholders. Do you agree? Elaborate. (04 marks)
(CA Inter, Spring 2005)
LO 1.3: MEANING OF LIMITED LIABILITY:
Liability of Members of company:

Members/Shareholders of a company have Limited Liability.
Limited Liability Concept:

This concept states that members are not fully liable for the debts of
company (because company is legal person separate from its owners).
Its members are liable for the debts of company only to the extent
mentioned in memorandum.
Concept of limited liability applies to the owners/shareholders of company (and not on company
itself). The inclusion of word “Limited” in the name of a company shows that liability of its
members/shareholders is limited.
Liability of a company itself and its directors:

 A company is fully liable for all of its debts and liabilities.
 Directors and other officers of a company are not liable for debts and liabilities of a
company if they act within their powers.

In relation to company law, discuss the doctrine and effect of limited liability. (10 marks)
(ACCA, June 2013)
LO 1.4: TRANSFER OF OWNERSHIP AND PERPETUAL SUCCESSION:

Transfer of Shares:
A common feature of a company is that it can transfer its shares from one person to another by Sale,
Gift or Inheritance.
Perpetual Succession:
Perpetual succession means a company, being a legal person, does not die. It continues even if its
owners change or die. A company is created by a process of law and is ended by a process of law.
Exam Tip
Right of shareholders to transfer their shares could be either “Free” or “Restricted”, depending
3 on type of company. Muhammad Asif, ACA
PART 2 – TYPES OF COMPANIES

Types on the basis of Status:
1. Private Company
a. Single Member Company/SMC (a private company which consists of only one
member who is also the director of the company)
b. Companies Other than SMC
2. Public Company
a. Listed Company
b. Unlisted Company
Types on the basis of Liability:

1. Company Limited by Share
2. Company Limited by Guarantee (with or without share capital)
3. Unlimited Company
Other Types of Companies:

1. Associations not for profit
2. Holding Company and Subsidiary Company

List the types of companies that can be formed under the Companies Ordinance, 1984. (03 marks)
What is a Single Member Company? Compare it with a Private Limited Company. (05 marks)
(CA Inter, Autumn 2004)
LO 2.1: DEFINITION OF COMPANY AND BODY CORPORATE:
Company:
Company means a company which is registered under the
Companies Ordinance 1984 or an existing company.
Existing Company:
Existing Company means a company which is registered prior to
Companies Ordinance 1984 under any other law relating to
registration of Companies.
Body Corporate:
“Body Corporate” or “Corporation” includes a company
incorporated outside Pakistan. It does not include:
 A Corporation Sole
 A Co-operative Society registered under their relevant laws.
 Any Body Corporate which Federal Govt. may specify.

LO 2.2: COMPANIES LIMITED BY SHARES, COMPANIES LIMITED BY GUARANTEE AND

UNLIMITED COMPANIES:
Company Limited by Shares:

A company having the liability of its members limited by the
memorandum to the amount unpaid, if any, on the shares
respectively held by them.
Such a company can raise additional capital by issuing new shares.
Company Limited by Guarantee:

A company having the liability of its members limited by the
memorandum to the amount as the members may respectively
undertake to contribute to the assets of the company in the event
of its winding up. Such companies may have or may not have share
capital.
Unlimited Company:
A company having the liability of its members unlimited by the
memorandum.

Differentiate as to how company limited by guarantee differs from company limited by shares
capital. (02 marks)
LO 2.3: PRIVATE COMPANY AND PUBLIC COMPANY:
Private Company:
Private Company means a company which, by its articles,:
(i) limits the number of its members to 50 (excluding employees),
(ii) restricts the right to transfer its shares, and
(iii) prohibits invitation to public to subscribe for shares or
debentures of company.
Public Company:
Public Company means a company which is not a private company.
Legal Privileges and Exemptions available to a Private Company:

1. A private company can be formed with only one (for Single Member Company), or two (for
other than SMC company) members/directors.
2. A private company is not required to:

a. obtain “certificate of commencement of business” after incorporation.

b. issue “Prospectus” or “Statement in lieu of Prospectus” before allotment of shares.
c. conduct “statutory meeting” after commencement of business.
d. submit “statutory report” to Registrar.
e. submit its financial statements to Registrar.
Consequences of default in complying with restrictive conditions:

If a private company does not follow any of above restrictive conditions, it will be deemed a public
company i.e.:
1. It will cease to enjoy legal privileges and exemptions available to a private company.
2. All provisions of Companies Ordinance 1984 shall apply on such company as if it were a
public company.
However, SECP may grant relief from above consequences, if it thinks that a relief is just and
equitable in the circumstances (e.g. when default was unintentional).
Exam Tip
Difference between Private & Public Company = Definition + Legal Privileges & Exemptions

State briefly the restrictive conditions under which a private company is incorporated. What are the
consequences of not abiding by these conditions under the Companies Ordinance, 1984?
(06 marks)
What are the differences between the requirements for being a private and public limited
company? (02 marks)
What are the legal concessions enjoyed by a private company as against a public company.
(03 marks)
LO 2.4: LISTED COMPANY AND UNLISTED COMPANY:
Listed Company:
Listed company means a company whose securities are listed on any
stock exchange in Pakistan.
Unlisted Company:
Unlisted company means a company whose securities are not listed
on any stock exchange in Pakistan.


Define a listed company. Briefly describe various legal provisions of the Companies Ordinance
relating to listed companies. (03 marks)
LO 2.5: HOLDING COMPANY AND SUBSIDIARY COMPANY:
Holding Company:
A holding company means a company:
1. Who holds/controls (directly or indirectly) more than 50% voting
securities of a company.
2. Who has power to elect/appoint majority of directors of a company.
Subsidiary Company:
A subsidiary company means a company:
1. Whose more than 50% voting securities are held/controlled (directly or
indirectly) by another company, or
2. Whose majority of directors are elected/appointed by another company.
3. Which is subsidiary of a subsidiary company.
Central Depository Company (CDC) is not considered holding company of a company, unless CDC
beneficially owns shares.

What is the meaning of a Subsidiary Company? (03 marks)
PART 3 – ASSOCIATION NOT FOR PROFIT
LO 3.1: ASSOCIATION NOT FOR PROFIT (i.e. POWER TO DISPENSE WITH WORD
“LIMITED”):
Conditions for grant of license as “Associations Not for Profit”:

SECP may grant a license to an association as “Not for Profit” if:
1. Association is capable of being formed as a company with limited liability.
2. Object of association is “promoting science, art, commerce, religion, sports, social services,
charity or other useful object”
3. It applies its profits and other income in promoting its object.
4. It does not apply its profit in payment of dividend to its members.
5. SECP:
 may grant license on such further conditions as it thinks fit, and
 may direct such conditions to be inserted in memorandum and/or articles as it thinks
fit.

Privileges to an associations not for profit:

On registration as association not for profit, the association shall:
̶ be registered as a company with limited liability.
̶ not add words “"Limited", "(Private) Limited" or "(Guarantee) Limited" with its name (as
the case may be).
Revocation of license:
1. License may be revoked anytime by SECP. However, before revocation of license, SECP shall
give association an opportunity of being heard.
2. On revocation, Registrar adds words “"Limited", "(Private) Limited" or "(Guarantee)
Limited" with his name (as the case may be), and company shall use the same with its name.

What are the pre-requisites for obtaining a license for an ‘Association not for profit’ which is to
be incorporated as a limited company? (05 marks)
PART 4 – SECURITIES & EXCHANGE COMMISSION OF PAKSITAN
LO 4.1: THE COMMISSION:
The Commission:
The Commission means the Securities and Exchange Commission of
Pakistan constituted under section 3 of Securities and Exchange
Commission of Pakistan Act 1997.
Functions and Powers of SECP:

Functions of Commission is to regulate companies.
SECP has power to grant approval and deal with following matters under Companies Ordinance
1984:
1. To grant license to a company as “not for profit”
2. To give approval to company to include certain words in the name of a company.
3. To alter the Object and Place clause of memorandum.
4. To extend the time for holding of AGM (for listed companies)
5. To allow to hold AGM at place other than town of registered office (for listed companies)
6. To call Statutory Meeting, AGM, or EGM (if default is made in conducting them).
7. To order company to hold fresh election of directors.
8. To permit a company to give loan to its directors.
9. To permit a company to withhold payment of dividend to specific shareholders, after it is
declared.
10. To appoint auditor in certain cases.

LO 4.2: REGISTRAR:
Registrar:
“Registrar” means a registrar, an additional registrar, a joint registrar,
a deputy registrar or an assistant registrar, performing the duty of
registration of companies under the Companies Ordinance 1984.
Functions and Powers of Registrar:

Registrar has power to grant approval and deal with following matters under Companies Ordinance
1984:
1. Issue “Certificate of Incorporation” to companies.
2. Issue “Certificate of Commencement of business” to public companies.
3. To change/rectify name of a company.
4. To register mortgages and charges of company and their satisfaction
5. To extend the time for holding of AGM (for unlisted companies)
6. To authorize holding of EGM at shorter notice (i.e. less than 21 days).
7. To receive different types of documents from company e.g. memorandum, articles, special
resolutions.
8. To allow period for preparation of accounts other than 12 months.
LO 4.3: COURT:
Court/Company Court/Jurisdiction of Court:

Court means High Court having jurisdiction in the place at which
registered office of company is situated. However, Federal Govt. may
also empower a Civil Court to be a “Court” in respect of companies
having registered office within jurisdiction of such Civil Court.
Court has power to grant approval and deal with following matters under Companies Ordinance
1984:
1. To declare as null and void the resolution of variation in shareholders’ rights.
2. To declare as null and void the election of directors

Company Law – Revision Notes Chapter 20: Incorporation of Company
REVISION NOTES
CHAPTER
MUHAMMAD ASIF, ACA
ON
20
Incorporation of Company
PART 1 – REGISTRATION OF A COMPANY

1.1 Obligation to be Registered as a Company
1.2 Process of Registration/Incorporation
PART 2 – NAME OF COMPANY
2.1 Restrictions regarding Names
2.2 Publication of Names
PART 3 – MEMORANDUM OF ASSOCIATION
3.1 Introduction to Memorandum of Association
3.2 Clauses of Memorandum of Association
3.3 Alteration in Memorandum of Association
3.4 Registration of Memorandum of Association
PART 4 – ARTICLES OF ASSOCIATION
4.1 Introduction to Articles of Association
4.2 Alteration of Articles of Association
PART 5 – COMMENCEMENT OF BUSINESS AND REGISTERED OFFICE
5.1 Commencement of Business
5.2 Registered Office

PART 1 – REGISTRATION OF A COMPANY
LO 1.1: OBLIGATION TO BE REGISTERED AS A COMPANY:

Illegal Association:
An association of persons/partnership consisting of more than twenty members and formed for the
purpose of acquisition of gain is considered illegal, unless it is registered under the Companies
Ordinance, 1984.
Exception:
This requirement does not apply on:
 A partnership of lawyers or accountants (or other professionals who cannot practice as a
limited liability company).
 A joint family carrying on business.
 A partnership of two or more joint families if total number of members (excluding minors)
do not exceed 20.
 An Association or Society formed under another law in Pakistan.
Consequences of illegal association:

1. Illegal association will have no legal status (Provisions of neither Partnership Act 1932, nor
of C.O. 1984 shall apply).
2. It lacks contractual capacity.
3. Members of such association cannot sue or claim benefit neither against outsider nor
against each other.
4. Every member of such partnership/association shall be penalized i.e. he shall be:
a. punishable with fine upto Rs. 5,000 and
b. personally liable for all the liabilities incurred in such business.
LO 1.2: PROCESS OF REGISTRATION/INCORPORATION:

Promoters perform following procedures to incorporate a company (whether private or public):
Step Procedures
Promoters agree to form a company and decide type of proposed company
i.e.
Initiate Proposal
 whether Private or Public.
 whether limited by share, limited by guarantee or unlimited.
Reserve name of Name can be reserved through:
proposed  written application to Registrar or
company  electronic name reservation via website of SECP.
Prepare Following documents are required to be prepared:
constitutive 1. Memorandum of Association (memorandum)
documents 2. Articles of Association (articles)
Application is filed with Registrar alongwith following documents:
1. Memorandum and Articles duly singed by subscribers. (Formats of
Memorandum and Articles are given in First Schedule of C.O. 1984)
File application 2. Declaration of compliance with requirements of C.O. 1984 regarding
incorporation. (in prescribed Form – 1)
3. In case of public company, list of directors and their consent (in
prescribed Form – 27 & 28).

If registrar is satisfied that purpose of forming a company is legal and bona-

Registration by fide, he shall:
Registrar 1. register the memorandum and articles and
2. issue Certificate of Incorporation.
Effect of Registration of Memorandum/Certificate of Incorporation:

 “Certificate of Incorporation” is the conclusive evidence that company is registered under the
C.O. 1984.
 From date of incorporation, company shall be a separate legal entity from its Directors and
Members. It will have its own common seal, perpetual succession and specified liability.
 Company, its members and its management shall be bound by the provisions of the
Memorandum and Articles in their all dealings.
If registration of Memorandum is refused:

1. Subscribers to the Memorandum can re-apply after removing the deficiency or
2. Subscribers to the Memorandum can file an appeal to:
a. Registrar (if registration was refused by assistant registrar/deputy registrar) or
b. SECP (if registration was refused by Registrar)
Decision of the Commission shall be final in respect of whether or not to register memorandum of a
company and cannot be challenged in any court or authority.
PART 2 – NAME OF COMPANY
LO 2.1: RESTRICTIONS REGARDING NAMES:

Prohibition of Certain Names:
A company can be registered with any appropriate name. However, companies are prohibited to be
registered with a name which:
1. is identical or closely resembles with an existing company (except when existing company is
under winding up and gives its consent in writing).
2. is inappropriate or deceptive
3. is selected to exploit or offend religious feelings of people.
4. contains words suggesting patronage/connection with:
 Past or present Pakistani or foreign president. (e.g. words like Obama, Zardari)
 Federal or Provincial Govt. or any of its department/authority/corporation (e.g. words
like 'Federal', 'State', 'Government').
 Foreign Govt. or any international organization (e.g. words like 'IMF', 'UNESCO', 'NATO',
'OPEC').
(except with the prior approval of commission in writing)
Decision of the Commission shall be final in respect of whether or not the name is appropriate and
cannot be challenged in any court or authority.
Change in name of a Company:

To change name of a company:
1. Directors will approve resolution at Board Meeting.
2. Proposed name will be reserved from Registrar/SECP website.
3. Members will pass special resolution in general meeting.
4. Application shall be filed to Registrar to register the change (application shall accompany
altered memorandum and copy of special resolution).

5. Registrar shall approve/register the change and shall issue altered certificate of
incorporation.
6. For one year from the date of altered certificate of incorporation, company shall continue to
mention its former name alongwith new name:
a. outside of every office or place of business
b. on specified documents (i.e. letter heads, invoices, receipts, letter of credits,
cheques, bills of exchange).
Effect of Change in Name:

The change of name shall not affect:
i. any rights or obligations of the company, or
ii. any legal proceedings by or against the company.
Following shall not be deemed a change in the name of company:

 addition or deletion of word “private” because of change in status of company
 addition of words “New”, “Modern”, “International”, Mills”, “Enterpresies”, “Company”.
Rectification of name of Company:

If a company has been registered with an inappropriate name, its name can be rectified
subsequently:
1. By Registrar (Company will have to change its name within 30 days of the order of
Registrar. However, Registrar cannot order after 3 years of Registration of such name)
2. By Company itself (anytime after registration)
LO 2.2: PUBLICATION OF NAMES:

Every limited company shall:
1. paint or affix its name on outside of every office or place of business at a noticeable place in
English or Urdue.
2. engrave its name on its seal.
3. mention its name on specified documents (i.e. letter heads, invoices, receipts, letter of
credits, cheques, bills of exchange).
PART 3 – MEMORANDUM OF ASSOCIATION
LO 3.1: INTRODUCTION TO MEMORANDUM OF ASSOCIATION:

Memorandum is a fundamental document which deals with constitution of a company. It defines
the scope of a company and deals with outsiders. It binds all the members of the company
irrespective of whether any member has subscribed it or not.
Memorandum/Articles should be:

 subscribed/signed by atleast:
o 1 subscriber in case of private company – SMC
o 2 subscribers in case of private company – other than SMC
o 3 subscribers in case of public company – unlisted
o 7 subscribers in case of public company – listed
 Each subscriber shall write his name, father’s name, occupation, nationality and address.
 Memorandum/Articles should be printed, divided into serially numbered paragraphs, dated
and witnessed.

LO 3.2: CLAUSES OF MEMORANDUM OF ASSOCIATION:

Following clauses are required to be included in the memorandum of every company:
Clause Explanation
1. A company shall not select a name which is prohibited by C.O. 1984 (see below)
2. Name of company shall show its status (i.e. public or private) as follows:
 Private company shall add word “(Private)” at the end of its name.
 Public company shall not use this word at end of its name.
Name Clause 3. Name of company shall also show its liability as follows:
 A company limited by share shall add word “Limited” at the end of its name.
 A company limited by guarantee shall add word "(Guarantee) Limited" at the
end of its name.
 An unlimited company shall not use these words at the end of its name.
This clause shall state Province or Islamabad (being not part of any province) where
Place Clause
registered office of the company is to be situated.
1. This clause shall state Objects of company and area of operations.
Object Clause
2. Area is not required to be stated if company is a trading corporation.
1. This clause shall state liabilities of members i.e. whether limited by shares or
limited by guarantee.
Liability Clause 2. This clause is not required if liability of members is unlimited.
3. If liability of any or all directors is unlimited, it will be expressly stated in this
clause.
1. This clause shall state Authorized/Registered Share capital and division of share
capital into shares of fixed amount.
Capital Clause 2. Each subscriber of memorandum is required to take atleast one share and shall
write, opposite to his name, shares taken by him.
3. This clause is not required if company does not have share capital.
Notes:
1. Memorandum and articles of a company shall be deemed to include the power of company to
enter into any arrangement for obtaining advances, credit and loans from financial institutions.
2. In addition to above required clauses, memorandum may include other clauses if subscribers
desire.
LO 3.3: ALTERATION IN MEMORANDUM OF ASSOCIATION:

A company can alter any clause of its memorandum subsequent to its registration. However,
alteration of each clause shall be strictly in accordance with provisions of companies ordinance
1984 only.
Companies Ordinance 1984 discusses procedures to alter clauses as follows:

1. Alteration in Name clause (already discussed in LO # 2.1)
2. Alteration in Place and object clause
3. Alteration in Liability clause
4. Alteration in Share Capital clause
Procedures to alter each clause are discussed in subsequent learning objectives.

ALTERATION IN PLACE AND OBJECTS
Situations when alteration in Place and Objects is allowed:

Alteration in memorandum is allowed in following cases only:
1. to enlarge or change the area of its operations; or
2. to carry on business on objects which are not specified in the memorandum; or
3. to restrict or abandon any of the objects specified in the memorandum; or
4. to sell or dispose of the whole or any part of the undertaking of the company; or
5. to amalgamate with any other company or body of persons; or
6. to carry on its business more economically or more efficiently; or
7. to attain its main purpose by new or improved means.
Step-wise Process of Alteration in Place and Objects (in Memorandum):

1. Discuss the matter at Board Meeting.
2. Send notice of general meeting to members 21 days’ before meeting.
3. Members will pass special resolution in general meeting (copy of special resolution shall be
filed with Registrar within 15 days of resolution).
4. Application shall be filed to SECP to obtain approval in this case:
a. Application shall be filed within 60 days of special resolution.
b. Application shall include information and documents required by Rule–3.
5. SECP will give approval only if it is satisfied that company has performed following
procedures:
a. Sufficient notice has been given to every debenture-holder and creditor whose
interest will be affected (in opinion of Commission) by the alteration, and
b. Debt/Claim of every person who is entitled to object and expresses his objection,
has been settled or secured or his consent has been obtained.
6. Application shall be filed to Registrar to register the change:
a. Application shall be filed within 90 days of the order of commission. (If application
is not filed within 90 days, such alteration and order and related proceedings will be
null and void. However, this period may be extended by SECP if application made
within a further period of 90 days).
b. Application shall be accompanies by altered memorandum, copy of special
resolution and order of SECP.
7. Registrar shall issue certificate of Registration of altered memorandum.
Note
1. Approval of SECP is not required if company is changing office from Punjab to Islamabad and
vice-versa.
2. If registered office is shifted within same province, it will not be alteration in memorandum.
However, company will have to send notice to Registrar (in Form 21) to record this.
ALTERATION IN LIABILITIES OF COMPANY
Changing the liability of members:

A company can change liability of its members from unlimited to limited and vice versa.
Step-wise Process of alteration in Memorandum is as follows:

4. If liability is changed from unlimited to limited:
a. It shall not affect liabilities of company before registration.
b. For this purpose, unlimited liabilities of members prior to conversion shall be settled
by increasing the nominal amount of each share (however such increased amount shall
be called up only at time of winding up).
5. If liability is changed from limited to unlimited, consent of members shall be obtained in
writing.
6. File altered memorandum alongwith special resolution and consent of members to
registrar.
7. Registrar shall close the former registration and it will be registered in the same way as if it
were a new registration of company.
Making liability of directors unlimited:

A company can change liability of its directors (all or any) from limited to unlimited.
Step-wise Procedure of alteration in Memorandum is as follows:
1. Company should be authorized by its articles to do so.
2. Obtain consent of affected director to make his liability unlimited from date of alteration till
expiry of his term for directorship.
6. File altered memorandum alongwith copy of special resolution and consent of directors to
registrar.
7. Registrar shall issue certificate of Registration of altered memorandum.
Note
Alteration in memorandum or articles cannot require existing members to:
 take more share than held by him at time of alteration or
 increase his liability to contribute to assets of company in winding up
unless member agrees in writing.
ALTERATION IN SHARE CAPITAL
A company can alter its share capital by increasing/decreasing amount of share capital, or convert
shares into smaller or larger amounts.
Procedure to alter the share capital:

3. Send notice of general meeting to members.
4. Members will pass resolution in general meeting (copy of special resolution shall be filed
with Registrar within 15 days of resolution).
LO 3.4: REGISTRATION OF MEMORANDUM OF ASSOCIATION:

Covered in LO # 1.2 above in this chapter.

PART 4 – ARTICLES OF ASSOCIATION
LO 4.1: INTRODUCTION TO ARTICLES OF ASSOCIATION:

Articles is a regulatory document which contains rules and regulations about internal affairs of the
company.
Difference between Memorandum of Association and Articles of Association:
Memorandum of Association Articles of Association

(Memorandum) (Articles)
Memorandum is a fundamental document Articles is a regulatory document which
which deals with constitution of a company. contains rules and regulations about internal
Definition
It defines the scope of a company and deals affairs of the company.
with outsiders.
It is subordinate to C.O. 1984 and cannot It is subordinate to both C.O. 1984 and MOA,
Legal Status
override it. and cannot override any of them.
It includes clauses about Name, Province, It includes clauses about Share capital,
What is Objects, Liability, Share capital. Debentures and Loans, Shareholders and
included Their Meetings, Directors and Their Meetings,
Accounts/Dividend/Audit, and Winding up.
Each clause of memorandum can be altered It can be altered through special resolution.
Alteration according to relevant provisions of
Companies Ordinance 1984.
It is required for every company to submit It is not required for companies limited by
Requirement memorandum at time of registration of shares to prepare articles. In the absence of
of submission company. articles, provisions contained in Table A
(First Schedule) shall apply.
LO 4.2: ALTERATION OF ARTICLES OF ASSOCIATION:

Step-wise Procedure of alteration in Articles is as follows:
9. Send notice of general meeting to members 21 days’ before meeting specifying intention to
pass special resolution on the matter.
11. File altered Articles alongwith copy of special resolution.
12. Registrar shall issue certificate of Registration of altered articles.
Note:
Companies Ordinance 1984 has placed following restrictions on alteration of Articles:
1. Alteration in Articles shall not be against provisions of Companies Ordinance 1984 and
conditions contained in its memorandum.
2. If alteration affects rights or liabilities of some members, it shall be voted by at least three-
fourths of affected members.
3. Alteration in Articles shall not have retrospective effect.

PART 5 – COMMENCEMENT OF BUSINESS AND REGISTERED OFFICE
LO 5.1: COMMENCEMENT OF BUSINESS:

Requirements for public company to commence business:
1. A public company cannot exercise any borrowing powers or commence any business unless
it has obtained “certificate of commencement of business” from Registrar.
2. All agreements to exercise borrowing powers shall be void and all agreements to commence
business (e.g. agreements of sale and purchase) shall be provisional only (i.e. will become
binding only if certificate of commencement of business is obtained).
Procedure to obtain “Certificate of Commencement of Business”:

Chief Executive or a Director and Secretary of company shall file with registrar a declaration that
following conditions have been complied:
1. Shares have been allotted upto the amount of minimum subscription.
2. Directors have paid full amount for shares taken by them.
3. If company did not offer securities for public-subscription, Statement in lieu of prospectus
has been filed with Registrar.
4. If company offered securities for public-subscription but failed to obtain permission to get
its securities listed on stock exchange, all money received from public issue has been
returned.
Registrar shall issue certificate after receiving such declaration.
LO 5.2: REGISTERED OFFICE:

1. Every company shall have a registered office within 28 days of incorporation (or from date
of commencement of business if earlier) and shall notify Registrar.
2. All communications and notices shall be addressed to Registered Office.
3. Any change in address of registered office shall be notified to Registrar within 28 days of
change.

Company Law – Revision Notes Chapter 21: Share Capital – Types & Variation
REVISION NOTES
CHAPTER
MUHAMMAD ASIF, ACA
ON
21
Share Capital – Types & Variation
PART 1 – SHARES IN COMPANIES

1.1 Division of share capital into shares of fixed amounts
1.2 The number of shares and share certificate
1.3 Restrictions regarding Names
1.4 Publication of Names
1.5 Introduction to Memorandum of Association
PART 2 – VARIATION IN SHARE CAPITAL
2.1 Alteration in capital
2.2 Restriction on purchase of own shares by company
2.3 Variation in rights of the shareholders

PART 1 – SHARES IN COMPANY
LO 1.1: DIVISION OF SHARE CAPITAL INTO SHARES OF FIXED AMOUNTS:

In a company limited by shares, share capital means the capital introduced by
members/shareholders of a company.
There may be different classes of shares. In each class, nominal value of each share shall be fixed.
LO 1.2: THE NATURE OF SHARES AND SHARE CERTIFICATE:

Shares:
A share in a company has following characteristics:
1. A share is a form of property i.e. it has rights and obligations.
2. A share can be transferred from one person to another (as per articles of company).
3. A share can be described as a form of bargain between shareholders to comply with
memorandum and articles.
4. A share is to be paid in full.
Share Certificate:
Share certificate is evidence of ownership of shares in the name of member.
Company is required to issue share certificate within 90 days of allotment of shares.
Share certificate denotes following:
 Number of shares owned by shareholder.
 Share Certificate Number
 Number of shares contained in share certificate.
 Signature of chief executive of the company.
CDC:
 Shareholders of listed company can keep their shares in central depository company
instead of share certificate.
 This is like opening a bank account and electronically depositing share certificate in that. In
such case, shareholder need not keep share certificate physically.
LO 1.3: AUTHORIZED SHARE CAPITAL:

1. Authorized share capital is the maximum amount of shares that the company may issue.
2. Most of the companies have share capital.
3. Authorized share capital can be increased subsequent to registration.
LO 1.4: ISSUED AND PAID UP SHARE CAPITAL:

Issued share capital is the nominal value of shares that have been issued to shareholders. Issued
share capital may be less than authorized share capital but cannot exceed it.
Only fully paid shares to be issued:

Only fully paid shares can be issued. If a company has partly paid shares, it shall not issue further
shares unless such shares are fully paid.
Issued share capital and the liability of shareholders:

Liability of shareholder is limited up to the unpaid amount of shares held by him i.e.
1. If shares are fully paid, liability of shareholder will be zero.
2. If shares are partly paid, liability of shareholder will be upto unpaid amount.

Advertisements and Notices:

Whenever a company mentions its authorized share capital in a notice or in any statement, it shall
also mention its issued share capital.
LO 1.5: KINDS AND CLASSES OF SHARES:

Share Capital of a company can consists of many kinds and classes of shares.
Common kinds of shares are:

1. Ordinary Shares
2. Preference Shares
Common classes of shares are:

1. Participatory and Non-Participatory shares
2. Redeemable and Irredeemable shares
3. Cumulative or Non-cumulative shares
4. Convertible and Non-convertible shares
Ordinary Shares Vs. Preference Shares:

Preference Shares:
“A preference share normally carries a prior right (ahead of ordinary shares) to:
 receive a dividend
 receive repayment of capital at time of winding up.”
Differences:
1. Generally, preference shareholders do not carry voting rights. Ordinary shareholders can
vote at general meeting.
2. Preference shares carry priority rights of receiving dividend and repayment of capital in
winding up.
3. Dividend on preference shares is normally a fixed %age.
4. Preference shareholders are entitled to dividend annually.
5. Ordinary shares are not redeemable. Preference shares may be redeemed.
PART 2 – VARIATION IN SHARE CAPITAL
LO 2.1: ALTERATION IN CAPITAL:

A company can alter its share capital by:
 increasing/decreasing amount of share capital, or
 convert shares into smaller or larger amounts or
 cancelling the part of share capital not paid up or
 increasing number of members (if company does not have share capital)
Procedure to alter the share capital:

3. Send notice of general meeting to members.
4. Members will pass resolution in general meeting (copy of resolution shall be filed with
Registrar within 15 days of resolution).

However, rights attached to new or converted shares (e.g. rights relating to voting, dividend, right
issue, bonus issue) shall be same as of previous shares.
Special provisions for banks and financial institutions:

As a general rule issued share capital cannot exceed authorized share capital. However if it is
obligation of a company to issue shares to a scheduled bank or financial institution, company may
issue share capital even if it has no sufficient authorized capital.
LO 2.2: RESTRICTION ON PURCHASE OF OWN SHARES BY COMPANY:

As a general rule, shares of a company are irredeemable and company cannot buy/hold its shares
back.
Following are exceptions in this regard:
1. If a company is dealing in brokerage business, company can hold shares of its holding
company. However, subsidiary shall not exercise voting rights of shares held by it.
2. If a company provides trustee services, it can hold shares of the holding company in trust.
However, shares shall not be in the name of subsidiary company or holding company.
3. A company cannot buy back its own shares. However, a listed company may buy back its
shares in accordance with rules and regulations of Commission.
4. A company cannot give any financial assistance (i.e. loan, guarantee, or security) to
purchase shares of company or of its holding company. However, a company can give
advance or security to any of its salaried employee (including chief executive who was not
director before his appointment as chief executive) for purchase of shares of the company
or of its subsidiary or holding company, if making or securing of such advance is a part of
the contract of service of such employee.
LO 2.3: VARIATION IN RIGHTS OF THE SHAREHOLDERS:

Rights attached to different types of shares:
Kinds and Classes of shares are mentioned in Memorandum. Rights attached to each kind and class
of share are mentioned in Articles.
Different kinds and classes of shares may have different rights with respect to:
1. Voting
2. Dividend
3. Right/Bonus Issue
4. Attending AGM
5. Payment in winding up
How to vary:
Rights of shareholders may be varied by passing special resolution to alter Articles. However,
approval of 3/4th majority of affected class is also required to vary their rights.
Appeal by Aggrieved Shareholders:

If some shareholders are aggrieved by variation in their rights, they can file an appeal to court for
cancellation of resolution if:
1. they represent atleast 10% of affected class, and
2. appeal is filed within 30 days of resolution
Order of Court:
Court shall pass order to cancel resolution if it is proved to court that:
1. some material facts were concealed by the company to get the resolution passed.
2. Variation will ‘unfairly prejudice’ applicants.

Company Law –Study Notes Chapter 22: Share Capital – Prospectus
CHAPTER TWENTY TWO

SHARE CAPITAL - PROSPECTUS
ICAP'S ICAP'S STUDY

LO # LEARNING OBJCTIVE SYLLABUS TEXT
REFERENCE REFERENCE*
LO 1 WHAT IS A “PROSPECTUS” AND WHEN IS IT ISSUED 22.1.1

LO 4.1.1 22.1.3
DIFFERENCE BETWEEN PROSPECTUS AND
LO 2 22.1.4
STATEMENT IN LIEU OF PROSPECTUS
PROCEDURE AND REQUIREMENTS REGARDING
LO 3 LO 4.1.2 22.1.6
ISSUANCE OF PROSPECTUS
REQUIREMENTS REGARDING CONTENTS/MATTERS OF
LO 4 LO 4.1.3
PROSPECTUS
22.1.2
LO 5 REQUIREMENTS REGARDING AUDITOR’S REPORTS LO 4.1.4
22.2.1
LO 6 REQUIREMENTS REGARDING CONSENT OF EXPERT LO 4.1.5
22.2.2
REQUIREMENTS REGARDING SIGNING AND DATE OF
LO 7 LO 4.1.2 22.1.6
PROSPECTUS
LO 8 AVAILABILITY OF PROSPECTUS LO 4.1.2 22.1.5
Coverage from Question Bank:

After completion of this chapter, you will be able to attempt following questions in ICAP's Question
Bank:
 Q. # 93  Q. # 97
 Q. # 94  Q. # 98
 Q. # 95
1 By: Muhammad Asif, ACA

Company Law – Revision Notes Chapter 22: Share Capital – Prospectus
LO 1: WHAT IS A “PROSPECTUS” AND WHEN IS IT ISSUED:
Prospectus:
"Prospectus" means any document which is issued to general public, inviting
offers from public for subscription of shares, debentures or deposits in a
company. It could be a booklet, circular, notice or even a newspaper
advertisement. However, A banking company or financial institution
approved by Federal Govt. need not issue Prospectus to invite deposits from
public.
Necessity of Prospectus:
A prospectus is issued whenever a listed company offers general public to subscribe for its
shares/debentures. However, following are the situations when a listed company is not required to
issue a prospectus (i.e. Application Form will be issued without prospectus):
1. Shares/debentures not offered to general public (i.e. issued by private arrangements).
2. Shares/debentures offered to enter into underwriting agreements.
3. Shares/debentures offered to existing shareholders.
4. Offer is made for such shares/debentures which are already in issue and listed on an
Exchange.
Timing of Prospectus:
Prospectus can be issued by company anytime after its incorporation (i.e. before or after
commencement of business).
Financial Institution:
Financial Institution includes:
 a company which transacts the business of banking or any
associated or ancillary business through its branches;
 a modaraba, leasing company, investment bank, venture capital
company, financing company, housing finance company, a non-
banking finance company; and
 such other institution as the Federal Government may specify for
the purpose.
Share:
Share means share in the share capital of a company.
Debenture:
Debenture includes any security other than share of a company, whether
constituting a charge of the assets of the company or not e.g. debenture
stock, bonds, term finance certificate.

LO 2: DIFFERENCE BETWEEN PROSPECTUS AND STATEMENT IN LIEU OF

PROSPECTUS:
Prospectus Statement in lieu of Prospectus

When a listed company invites When a public company allots its shares
general public to subscribe for its through private arrangement.
When is it issued shares or debentures. (private company neither issues
Prospectus nor Statement in lieu of
Prospectus)
It is issued to general public and It is filed only with Registrar atleast 3 days
Issued to also filed with Registrar for before allotment of shares/debentures.
registration.
Approval of SECP is required No approval required from SECP.
Approval
before issuance of Prospectus.
LO 3: PROCEDURE AND REQUIREMENTS REGARDING ISSUANCE OF PROSPECTUS:

Procedure:
Following is the typical procedure followed by a listed company when it issues Prospectus:
1. Board Resolution
2. SECP Approval.
3. Clearance from relevant stock exchange.
4. Preparation of prospectus
5. File prospectus with Registrar for registration
6. Issuance of prospectus (within 60 days of approval by SECP).
7. Subscription list should be opened (i.e. subscription should start) within 7 – 30 days from
date of issuance of prospectus.
Requirements for Registration of Prospectus with Registrar:

No Prospectus is registered by Registrar unless it complies with all requirements of all regarding:
a. Contents/Matters
b. Auditor’s Reports
c. Consent of Expert
d. Sign and Date
Following matters shall be stated on face of every prospectus:

1. Statement that a copy of prospectus has been filed with Registrar
2. List of documents to be filed with Registrar (i.e. Auditor’s Reports and Consent of Expert)
3. Statement that an application for listing of shares/debentures (offered by prospectus) has
been filed or will be filed with stock exchange (if shares/debentures are not yet listed)
LO 4: REQUIREMENTS REGARDING CONTENTS/MATTERS OF PROSPECTUS:

Companies Ordinance 1984 requires companies to include following matters/contents in every
prospectus:
(matters/contents regarding business of company)

1. Description, History and Prospects of business/company

2. Copy/Contents of Memorandum (if prospectus is issued within 2 years of commencement

of business)
3. Particulars of surplus on revaluation of fixed assets.
4. Pending legal proceedings (non-routine)
(matters/contents regarding management of company)

1. Particulars of current/proposed management (i.e. Directors, Chief Executive, Secretary,
managing agent) and name of other company where such person is also part of
management.
2. Remuneration of directors as provided in Articles.
3. Interest of shareholder/directors in the property or profits of company:
4. Every contract:
a. Fixing remuneration of chief executive, managing agent or company secretary
b. Which is material, not being in ordinary course of business.
(matters/contents regarding shares of company)

1. Total number of Shares/Debentures offered for subscription.
2. Date and Time of Opening and Closing of Subscription List
3. Name of Underwriters, legal advisers, auditors
4. Principal Purposes (alongwith approximate amount) for which proceeds of the issue will be
used.
5. Rights (voting, dividend, capital) attached to Shares
6. Minimum Subscription (on which directors will proceed to allot shares/debentures)
Note:
Terms of a contract referred in prospectus cannot be varied except with approval or authority of
company in general meeting.
Minimum Subscription:
Minimum Subscription means amount which is required to be subscribed
by investors before directors can proceed to allot shares/debentures.
It includes following amounts:
 Purchase price of property to be purchased
 Preliminary expenses including underwriting commission.
 Working capital.
 Any other necessary expenditure
 Repayment of any money borrowed to meet above matters
Underwriters:
Underwriters are the persons (usually banks or financial institutions) who
undertake to purchase those shares/debentures of the company which are
not subscribed by public in a public issue.
Underwriters charge two types of fee:
 Underwriting Commission (for giving undertaking to buy shares)
 Take-up Commission (for actually purchasing shares)

LO 5: REQUIREMENTS REGARDING AUDITOR’S REPORTS:

Auditor’s Report (in all cases):
Prospectus shall be accompanies by auditor’s report on:
1. Profits and losses of company for last 5 financial years, distinguishing items of a non-
recurring nature (if no accounts have been made for any part of last 5 years, a statement of
that fact).
2. Rates of dividend paid for each class of shares in last 5 financial years (if no dividend has
been made for any part of last 5 years, a statement of that fact).
3. Assets and liabilities of company at the last date to which the accounts of the company were
made.
Auditor’s Report if issuing company has subsidiaries:

Auditor shall report on following matters:
1. Profits and losses of subsidiaries (individually or as a whole) for last 5 financial years,
distinguishing items of a non-recurring nature (if no accounts have been made for any part
of last 5 years, a statement of that fact).
2. Assets and liabilities of subsidiaries (individually or as a whole) at the last date to which the
accounts of the company were made.
Auditor’s Report if proceeds are to be applied in purchase of shares of a body corporate

which will become subsidiary after purchase:
Auditor shall report on following matters of business:
1. Profits and losses of the company for last 5 financial years.
2. Assets and liabilities of company at the last date to which the accounts of the company were
made.
Auditor’s Report if proceeds are to be applied in purchase of a business or purchase of more

than 50% interest in business:
Auditor shall report on following matters of business:
1. Profits and losses of the business for last 5 financial years.
2. Assets and liabilities of business at the last date to which the accounts of the business were
made (being not more than 120 days before date of issue of prospectus).
LO 6: REQUIREMENTS REGARDING CONSENT OF EXPERT:
Expert:
"Expert" includes an engineer, a valuer, an accountant, and every other person
whose profession gives authority to a statement made by him.
Following are the requirements if statement (i.e. work) of an expert is included in Prospectus:
1. Expert is required to be unconnected with promotion, formation or management of the
company.
2. Written consent of expert will be obtained to the issue of prospectus (i.e. to publish his
name in prospectus).
3. A statement is included in Prospectus that:
a. expert has given his consent to the issue of prospectus, and
b. expert has not withdrawn his consent till the prospectus is filed with registrar for
registration.

LO 7: REQUIREMENTS REGARDING SIGNING AND DATE OF PROSPECTUS:

Signing:
Prospectus shall be signed by every person who is named therein as:
 director or
 proposed director of the company or
 by his agent authorised in writing.
Date:
Prospectus shall be dated. This date shall be taken as the date of publication/issue of the
prospectus (unless contrary is proved).
LO 8: AVAILABILITY OF PROSPECTUS:
Prospectus of a company shall be made available at following places:
1. At registered office of company.
2. At stock exchange where company is listed (or is proposed to be listed).
3. With bankers to the issue
4. Published in Newspapers (in full text or abridged form).

Company Law – Revision Notes Chapter 23: Mortgages & Charges
CHAPTER TWENTY THREE

MORTGAGES & CHARGES
ICAP'S ICAP'S STUDY
LO # LEARNING OBJCTIVE SYLLABUS TEXT
REFERENCE REFERENCE*
LO 1 INHERENT BORROWING POWERS OF A COMPANY N/A 23.1.1
LO 2 FORMS OF BORROWINGS N/A 23.1.2
LO 3 TYPES OF SECURITY N/A 23.1.3

MORTGAGE OR CHARGE REQUIRED TO BE
LO 4 LO 4.3.1 23.2.1
REGISTERED
PROCEDURE FOR REGISTRATION OF MORTGAGE LO 4.3.1
LO 5 23.2.2
OR CHARGE LO 4.3.5
LO 4.3.2
PAYMENT OR SATISFACTION OF MORTGAGE OR
LO 6 LO 4.3.3 23.2.3
CHARGE LO 4.3.4

PART 1 – BORROWING POWERS OF A COMPANY
LO 1: INHERENT BORROWING POWERS OF A COMPANY:

A company is deemed to have powers:
 To borrow money as loans, advances or credit from the scheduled banks or financial
institutions.
 To issue securities not based on interest
Memorandum need not include specific provision to borrow money.
However, following are restrictions in this regard:

1. A public company cannot borrow money until it obtains certificate of commencement of
business.
2. In Articles, members may limit the maximum amount which can be borrowed by directors.
If directors exceed their limit without prior approval of members, it will be ultra-vires
borrowing.
LO 2: FORMS OF BORROWINGS:
A company can borrow money by:
1. Issuance of securities (i.e. debentures)
2. Borrowings from financial institutions
3. Borrowings from shareholders/directors
There may or may not be security against a borrowing.
Debentures:
1. Debentures often carry fixed interest payment. However, debentures not based on interest
may also be issued (these participate in profits of company).
2. Debentures do not carry voting rights in general meeting. However, debentures
convertibles into ordinary shares may carry voting rights.
3. Debentures may be secured or unsecured. Company secures payment of interest or
principal by creating a charge on its assets.
LO 3: TYPES OF SECURITY:
There are three types of securities i.e.
1. Pledge
2. Mortgage
3. Charge
Pledge Mortgage Charge
A charge is security for the
Pledge is a bailment
A mortgage is the transfer of payment of a debt or other
of goods as security
an interest in specific obligation that does not pass
for the repayment of
Definition immovable property for the title of the property or any
a debt or
purpose of security for the right to its possession to the
performance of a
repayment of a debt. person to whom the charge is
promise.
given.

Not transferred to lender

Physical
Transferred to lenderuntil default is made in loan Not transferred to lender
Possession
agreement.
Not Required. Required to be registered. Required to be registered. If
Registration
If not registered, it will not not registered, it will not be
with
be enforceable under C.O. enforceable under C.O. 1984.
Registrar
1984.
Specific Movable Specific Immovable assets of Movable as well as Immovable
assets of company. the company. assets of the company.
Charge may be created on:
Types of
 specific assets (called Fixed
Assets
charge)
 general category of assets
(called Floating charge)
Types of Charge:
Charges can be of two types:
Fixed Charge Floating Charge
It is created on specific identifiable assets.It is created on entire class of assets (present or
future)
Company cannot dispose/replace assets under Company can dispose/replace assets under
Fixed Charge. Floating Charge.
At time of winding up, fixed charge does not At time of winding up, floating charge
change. crystallizes i.e. it automatically converts into
fixed charge.
It is a paramount security (because its value It is a weak security (because its value may
does not change). change and may fall)
PART 2 – REGISTRATION OF MORTGAGES & CHARGES
LO 4: MORTGAGE OR CHARGE REQUIRED TO BE REGISTERED:

Following mortgages and charges are required to be registered with Registrar:
a) a mortgage or charge for the purpose of securing any issue of debentures (including
redeemable capital or musharika agreements); or
b) a mortgage or charge on uncalled share capital of the company (if company has issued
partly paid shares); or
c) a mortgage or charge on any immovable property; or
d) a mortgage or charge on any receivables of the company (however routine invoice
discounting is not required to be registered); or
e) a mortgage or charge, not being a pledge, on any movable property of the company; or
f) a floating charge on the undertaking or property of the company, including stock-in-trade;
or
g) a mortgage or charge on a ship or any share in a ship; or
h) a mortgage or charge on goodwill, patent, licence, trade mark, license or copyright; or
i) a mortgage or charge or other interest based on hire-purchase or leasing agreement for
acquisition of fixed assets;

Redeemable Capital:
Redeemable capital includes finance obtained on the basis of:
 Participatory Redeemable Capital/ Participation Terms
Certificate (such redeemable capital as is entitled to participate
in the profit and loss of a company).
 Musharika certificate, Terms Finance Certificate.
 or any other security or obligation not based on interest.
Musharika Agreement:
Musharika Agreement means participatory redeemable capital in
lslamic banking.
LO 5: PROCEDURE FOR REGISTRATION OF MORTGAGE OR CHARGE:

Procedure for Registration:
Form -10 (prescribed particulars of the mortgage or charge), together with a verified copy of the
instrument by which the mortgage or charge is created, is filed with the registrar for registration
within twenty-one days after the date of its creation.
It is duty of Company, but right of lender to get the mortgage/charge registered with Registrar.
Whoever, gets the charge registered, charges of registration shall be borne by company and if
lender pays the expenses he is entitled for reimbursement of expenses.
Constructive notice of registration:

Every person who purchases a property from company shall be deemed to have knowledge of every
mortgages/charges registered with Registrar on property of the company. Therefore, every buyer
should check from Registrar whether the relevant property is under any mortgage/charge.
Consequences of non-registration:
If mortgage/charge is not registered within 21 days with registrar:
1. It will be void against liquidator or any creditor.
2. Debt will be unsecured.
3. Money borrowed will become payable immediately.
LO 6: PAYMENT OR SATISFACTION OF MORTGAGE OR CHARGE:

Satisfaction of mortgage/charge means debt has been paid against which mortgage/charge was
created.
Duty of Company to register satisfaction of mortgage/charge:

1. It is duty of company to inform Registrar regarding payment of debt within 21 days of
payment of loan.
2. Registrar shall verify from the lender regarding repayment of loan and shall allow him 14
days to object, if any.
a. If no objection is filed, registrar shall register the satisfaction of mortgage.
b. If any objection is filed, registrar shall inform company about objection.

Right of Registrar to register satisfaction of mortgage/charge:

If registrar is aware that a particular loan has been repaid and related mortgage/charge has been
satisfied, Registrar is entitled to enter satisfaction of mortgage even if no information is received
from company.
Right to inspect the copies of instruments creating charges:

Company is required to keep register of mortgage and copies of instruments creating charge at its
registered office.
Register of mortgage shall contain information regarding:

1. Property mortgaged/charges.
2. Terms and conditions.
3. Beneficiary of the charge.
Inspection of copies of the instruments:

Any creditor or member can inspect register of mortgages or charges of company free of cost.
Any person (other than creditor or member) can inspect register of mortgages or charges of
company against payment of fee.

Company Law – Revision Notes Chapter 24: Meetings
REVISION NOTES
CHAPTER
MUHAMMAD ASIF, ACA
ON
24
Meetings
PART 1 – COMPANY MEETINGS

1.1 Types of Company Meetings N/A
1.2 General Meetings N/A
1.3 Statutory Meeting Section 157
1.4 Annual General Meeting Section 158
1.5 Extraordinary General Meeting Section 159
1.6 Calling of Meetings by the Commission Section 170
1.7 Filing of Resolutions Section 172
PART 2 – GENERAL PROVISIONS AS TO COMPANY MEETINGS

2.1 Notice of Meeting Section 160 (1) a, b
2.2 Quorum of Meeting 160 (2)
2.3 Voting in Meetings Section 165 – 168
2.4 Proxies Section 161
2.5 Minutes Section 173
2.6 Representations at Meetings Section 162 & 163

PART 1 – COMPANY MEETINGS
LO 1.1: TYPES OF COMPANY MEETINGS:

There are two types of company meetings under Companies Ordinance 1984 i.e.
1. Board Meeting (meeting of Board of Directors of a company)
2. General Meeting (meeting of shareholders/members of a company)
LO 1.2: GENERAL MEETINGS:

There are three types of General Meetings:
1. Statutory Meeting
2. Annual General Meeting
3. Extraordinary General Meeting
LO 1.3: STATUTORY MEETING:
Statutory Meeting:
This is the first general meeting of a company, in which members discuss matters in respect of
formation of company e.g. Statutory Report.
Following companies are required to conduct Statutory Meeting:
1. Every public company limited by shares, and
2. Every public company limited by guarantee and having a share capital.
3. A private company which converts into above types within one year of incorporation.
When is a Statutory Meeting Conducted:

Statutory meeting is required to be conducted after 3 months but before 6 months from date of
commencement of business. For a converted company, date of conversion shall be deemed as date
of commencement of business in this regard.
Statutory Report:
Contents of Statutory Report

1. Total number of shares allotted.
2. Total amount of cash received in respect of all the shares allotted;
3. Abstract of the receipts and payments of the company.
4. Particulars of directors, chief executive, secretary, auditors and legal
advisers of the company;
5. Particulars of contract which are to be modified with approval of
members.
6. Extent of carrying out of underwriting contracts (if any).
7. Particulars of commission or brokerage paid or to be paid on issue of
shares to any director, chief executive, secretary or officer.
8. Company's affairs since its incorporation and the business plan.

This statutory report shall be sent to members along with notice of meeting and shall:
 be certified by Chief Executive and 2 directors.
 include auditor’s certificate on allotment of shares, receipts against allotment of shares, and
receipts and payments of company.
 be sent to Registrar (5 copies) after sending to members.
Effect on non-conducting of statutory meeting:

Company can be wound up by Court if statutory meeting is not conducted or statutory report is not
filed with Registrar. However, instead of winding up order, Court may order company to conduct
statutory meeting or file statutory report.

Define statutory meeting. How it is convened and what are the objective of this meeting. (04)
What information is required to be stated in the Statutory Report of the company? (08)
LO 1.4: ANNUAL GENERAL MEETING:
Annual General Meeting:

A meeting of members of company required to be held each calendar year, in which members
usually discuss Ordinary Business. However, special business can also be discussed.
When is an Annual General Meeting Conducted:

1. First AGM is conducted within 18 months from the date of incorporation.
2. Subsequently, AGM is conducted:
a. at least once in each calendar year , and
b. within 4 months from the close of financial year, and
c. within 15 months from the date of last AGM
Exception: Commission (for listed company) or Registrar (for other companies) may extend time for
holding of subsequent AGMs upto 30 days.
Where to hold AGM:

Listed companies shall hold AGM in the town in which registered office of the company is situated.
Exception: Commission may allow to hold a particular AGM at any other place.
Type of business to be transacted at AGM:

Ordinary and Special both types of business can be transacted at AGM.
Ordinary Business Special Business

1. Consideration of financial statements Every business other than ordinary business.
2. Consideration of Directors’ Report (For a list of special business, refer to list of items
3. Consideration of Auditor’s Report for which special resolution is required as
4. Approval of dividend mentioned in LO 1.7)
5. Appointment of auditor
6. Election of directors


In a general meeting, ordinary as well as special businesses are put up for consideration of
members. Distinguish between ordinary business as opposed to special business. (03 marks)
LO 1.5: EXTRAORDINARY GENERAL MEETING:
Extraordinary General Meeting:

Any general meeting, other than statutory meeting and annual general meeting is called
extraordinary general meeting, in which members discuss only special business.
When is an Extraordinary General Meeting Conducted:

1. when directors require approval of members in a special matter.
2. when requisitioned by members holding alteast 10% voting power.
If EOGM is requisitioned by members:

1. Requisition shall state objects of meeting and shall be deposited at registered office of the
company
2. EOGM will be conducted within 3 months of requisition. If directors don’t proceed within 21
days, members may call meeting on their own.
Type of business to be transacted at EOGM:

Only Special type of business can be transacted at EOGM.

Briefly explain the exceptions to the following provisions as specified under the Companies
Ordinance, 1984.
(a) An annual general meeting shall, in the case of a listed company, be held in the town in which the
registered office of the company is situated. (02 marks)
(b) Notice of an extraordinary general meeting shall be sent to the members at least twenty-one
days before the date of the meeting, and in the case of a listed company shall also be published in
the prescribed manner. (02 marks)
LO 1.6: CALLING OF MEETINGS BY THE COMMISSION:

Commission can call a general meeting if directors fail to conduct Statutory Meeting, Annual
General Meeting or Extraordinary General Meeting (if requisitioned).
Commission may also direct that:

 Quorum of meeting may be 1 person (present or through proxy)
 Cost of meeting shall be paid by company or an officer who made default.


Can the Securities and Exchange Commission call the meeting of a company where default is made
in holding the meeting? (03)
LO 1.7: FILING OF RESOLUTIONS:
Resolution:
A decision reached by majority of the members. There are two types of resolutions i.e.
Ordinary Resolution and Special Resolution.
Ordinary Resolution:
A decision reached by majority of more than 50% members, voting personally or through
proxy.
Special Resolution
A decision (at a general meeting):
1. at a general meeting, for which at least 21 days' notice is given.
2. reached by majority of 75% or more members, voting personally or through proxy.
(Exception: 21days’ notice is not necessary if all the members at general meeting so agree)
Ordinary Resolution or Special Resolution:

Ordinary resolution is required for all matters unless Special Resolution is specifically
required by Companies Ordinance 1984 or Articles of Association.
Companies Ordinance 1984 requires Ordinary Resolution in following matters:

1. Approval of dividend
2. Appointment of auditor
Companies Ordinance 1984 requires Special Resolution in following matters:

1. To alter Name, Place, Object and Liability Clause in memorandum of Company
2. To alter articles of association of company
3. To issue further capital without Right Issue
4. To reduce share capital
5. To alter memorandum to make liability of any/all directors unlimited.
6. To purchase its own shares
7. To make investment in associated companies
8. To give power to any/all directors to assign his office to another person
9. To prohibit a director to exercise any power.
10. To remove a chief executive (before expiry of his term)
11. To remove an auditor before AGM
12. To wind-up company

Filing requirements of Special Resolution:

A copy of every Special Resolution shall be:
1. filed with Registrar within 15 days (authenticated by Chief Executive or Secretary of the
Company).
2. Sent to members at their request.
3. Annexed to Articles issued subsequently to Special Resolution.

What do you mean by the term “Special Resolution” as per Companies Ordinance, 1984? (04)
(PIPFA, Summer 2013)
PART 2 – GENERAL PROVISIONS AS TO COMPANY MEETINGS

A general meeting may be declared invalid if:
1. There is material defect in notice of meeting.
2. Irregularity in proceedings of meeting e.g.
a. Quorum is not present
b. Members were prevented from exercising their rights e.g. Voting Rights, Proxy
Rights
Exception: Accidental omission to give notice or the non-receipt of notice by any member shall not
invalidate the proceedings of a meeting.
LO 2.1: NOTICE OF MEETING:

When to send notice of a general meeting:
Notice of Statutory Meeting, Annual General Meeting or Extraordinary General Meeting shall be
sent atleast 21 days before general meeting.
Exception: In case of EOGM, shorter notice may be given if Registrar approves (on application of
directors).
Whom to send notice of a general meeting:

Notice of a general meeting shall be sent to:
1. Every member of the company (in case of joint-holders, notice will be sent to person named
first in the register of members.)
2. Auditor of the company
3. Legal representative of a deceased member (if known to company)
4. Official receive of an insolvent member (if known to company)
In case of listed company, notice shall also be published in newspapers.
How to send notice of a general meeting:

1. Notice shall be sent at registered address or communication address by:
a. registered post or courier service
b. delivering personally to member against acknowledgment of receipt.
2. If there is no registered or communication address of member, notice will be advertised in
newspapers of province in which registered office of company is situated.

What should notice of a general meeting should contain:

Notice of general meeting shall contain following:
1. Date, Time and Place of meeting
2. Business to be transacted (both ordinary and special)
3. If a special business is to be transacted at a general meeting, notice of general meeting shall
also include:
 All material facts concerning such business.
 Nature and extent of any director’s interest.
 Time and place where document to be approved (if any) may be inspected.
 Copy of draft resolution (if special resolution is to be passed).

Who is entitled to receive the notice of the meetings of a company? Does the non- receipt of notice
by any member invalidates the proceedings of any meeting? (05)
State the requirements that a company needs to satisfy, as regards notice of the meeting, in case a
special business is to be transacted at a general meeting of the company. (03 marks)
LO 2.2: QUORUM OF MEETING:

Quorum:
Quorum of a general meeting shall be as follows unless Articles provide for larger number:
Type of Company Quorum
Listed Company 10 present members with 25% voting power (including
voting power of Proxies).
In case of any other company 2 present members with 25% voting power (including
voting power of Proxies).
In case of Single Member Company Single member present in person or by proxy
If quorum is not present at a meeting within half an hour:
Situation/Case Effect
If meeting was called by  Meeting shall be dissolved.
members (e.g. EOGM)
 Meeting shall be adjourned to the same day in the next week at
the same time and place.
In any other case
 If at adjourned meeting, quorum again is not present, 2 present
members shall be Quorum unless articles otherwise.

Under section 160 of the Companies Ordinance, 1984 state the provisions related to the
quorum of general meeting. 05
(ICMA Pakistan, November 2011)

LO 2.3: VOTING:
Voting:
The process of casting vote to decide a resolution in a meeting is called Voting. It is statutory
right of each member to cast vote.
There are two methods of casting vote i.e.
1. By Show of Hands
2. By Poll
Process of Voting by “Show of Hands”: Process of Voting by “Poll”:

1. This method will be used at first instance. 1. This method will be used, on or before
2. Chairman will ask members to raise their declaration of result by show of hands, if:
right hand if in favor of resolution and  Opted by chairman or
shall count votes (each member will have  Demanded by prescribed members
one vote; Proxy cannot vote). 2. Chairman will regulate the manner in
3. Chairman will ask members to raise their which poll will be taken (each member
right hand if in against the resolution and will have votes proportionate to value of
shall count votes. shares held by member; Proxy can also
4. Chairman will declare the results of vote).
voting indicating whether resolution is 3. Chairman and a representative of
passed or not. members will count the votes.
5. Declaration of result by chairman and an 4. Chairman will declare the results of
entry in the minute-book shall be voting indicating whether resolution is
evidence of resolution, unless contrary is passed or not.
proved. Proof of number of votes (in favor 5. Result of the Poll shall be decision of
or against) is not required. members on resolution.
Who can demand Poll:

Following members can demand Poll (personally or through proxy):
 Members having 10% of voting power or 10% of Paid Up Capital, or
 In case of public company, 5 members, or
 In case of private company,
o 1 member (if less than 7 members are present)
o 2 member (if more than 7 members are present)
The demand for a poll may be withdrawn at any time by the person or persons who made the
demand.
Time of Taking Poll:

Poll shall be taken within 14 days of demand of Poll.
Exception: Poll shall be taken immediately if it relates to election of a chairman or adjournment of
meeting.

Chairman of General Meeting:

1. The chairman of BOD shall be chairman of every general meeting of the company.
2. If chairman is not present within 15 minutes of the meeting, or is unwilling to act, anyone of
directors may be elected as chairman.
3. If no director is present or is unwilling to act, anyone of members may be elected as
chairman.

What are the provisions of law regarding demand for poll? (06)
LO 2.4: PROXIES:
Proxy:
Proxy is a person appointed by a member to attend, speak and vote in a general meeting on his
behalf. It is statutory right of each member to appoint Proxy.
Who can appoint a Proxy:

Every member of a company having share capital can appoint a Proxy at any general meeting.
Notice of general meeting shall state member’s right to appoint Proxy and shall also accompany a
Proxy Form.
Requirements to appoint a Proxy:

1. Proxy must be a member unless Articles permit otherwise.
2. A member can appoint only one Proxy at a meeting. If more than one proxies are appointed,
all appointments shall be invalid.
3. Proxy Form shall be:
a. lodged with company atleast 48 hours before the time of meeting (This overrides
Articles).
b. In written and signed by Member or his Authorized Attorney.
Rights of Proxy:
Proxy has following rights:
1. Right to attend a meeting.
2. Right to be counted for quorum of meeting.
3. Right to speak at meeting.
4. Right to vote at meeting.
5. Right to demand a Poll.
Every member can inspect Proxy Forms lodged with company.

Zafar wants to appoint Zameer as his proxy for attending the annual general meeting of a listed
company.
In view of the provisions of the Companies Ordinance, 1984 you are required to describe:
(a) The conditions, relating to the form and submission of the proxy, which Zafar would have to
comply with in order to issue a valid proxy. (04)
(b) The rights of Zameer on being appointed as a proxy. (04)

LO 2.5: MINUTES:
Every company shall keep at its registered office, fair and accurate summary of the minutes of BOD
Meetings and General Meetings.
Such minutes (duly signed by Chairman of meeting or chairman of next succeeding meeting) shall
be evidence of proceedings and decisions of meetings.
Minutes of BOD Meeting shall be sent to:

 every director (within 14 days of meeting).
 a member at his request (within 7 days of his request with prescribed fee)
These minutes shall be open for inspection by members without charge.

Discuss the provisions contained in the Companies Ordinance, 1984 relating to maintenance of
minutes of the general meetings of the company. (08 marks)
LO 2.6: REPRESENTATIONS AT MEETINGS:

A company/Federal Govt. (which is a member/creditor of another company) may authorize its
official or any other person (through Board Resolution) to act as his representative at a
general/creditor meeting.
The person so authorised shall be entitled to exercise the same powers as are available to the
company which he represents.

Company Law – Revision Notes Chapter 25: Management
REVISION NOTES
CHAPTER
MUHAMMAD ASIF, ACA
ON
25
Management
LO # LEARNING OBJCTIVE REFERENCE
PART 1 – APPOINTMENT AND ELECTION OF DIRECTORS

1.1 DIRECTORS
Section 174, 176,
1.2 NUMBER AND APOINTMENT OF DIRECTORS
184
Section 178, 178A,
1.3 ELECTION OF DIRECTORS
179, 185
1.4 ELIGIBILITY TO ACT AS DIRECTOR Section 175, 187
Section 180, 181,
1.5 VACATION OF OFFICE BY DIRECTORS
188
PART 2 – POWERS, DUTIES AND LIABILITIES OF DIRECTORS
2.1 POWERS OF DIRECTORS Section 196
2.2 LOAN TO DIRECTORS Section 195 (1), (2)
2.3 DISCLOSURE OF DIRECTORS’ INTEREST Section 214, 216
PART 3 – CHIEF EXECUTIVE AND COMPANY SECRETARY
APPOINTMENT, REMOVAL AND OTHER
3.1 Section 198 – 203
PROVISIONS RELATING TO CHIEF EXECUTIVE
APPOINTMENT OF COMPANY SECRETARY AND
3.2 Section 204A
SHARE REGISTRAR

PART 1 – APPOINTMENT AND ELECTION OF DIRECTORS
LO 1.1: DIRECTORS:
"director" means a person who manage the business. It includes any person occupying the position
of a director, by whatever name called.
1. Word “director” in job title does not mean that a person is legally a director.
2. Collectively directors are called “Board”, “Board of Directors” or “BOD”. ) are the persons
who manage the business.
3. Every director has equal authority, rights and liabilities.
4. Director should not lack ‘fiduciary behavior’ i.e. he should not deliberately act at
disadvantage of company.
LO 1.2: NUMBER AND APOINTMENT OF DIRECTORS:

Minimum number of directors:
Minimum number of members = Minimum number of directors
i.e.
o 1 in case of Single Member Company
o 2 in case of Private Company (other than SMC)
o 3 in case of unlisted public company
o 7 in case of listed public company
Appointment of first directors:

1. Personnel named in articles as directors shall be first directors of company.
2. If names of directors are not written in articles, subscribers shall decide number and names of
first directors. Till then, subscribers shall be deemed to be the directors of company.
3. No person shall be appointed/nominated as a director of public company (or private company
which is subsidiary of a public company) unless he gives his written consent to company.
Company shall file a list of appointed directors with their consent to Registrar within 14 days of
appointment.
First directors shall retire at the date of first AGM.
LO 1.3: ELECTION OF DIRECTORS:

In the first general meeting of company, members shall elect subsequent directors.
Procedure for election of directors:

Procedure for a company having share capital:
1. Directors decide number of directors atleast 35 days before relevant AGM.
2. Notice of AGM also states:
a. Names of retiring directors
b. Number of directors to be appointed (such number cannot be changed subsequently
by directors except with approval of members in general meeting).
3. A candidate should send notice of his willingness to company atleast 14 days before AGM.
However, such notice can be withdrawn anytime before AGM.
4. Company should send all notices of nominations to members atleast 7 days before AGM.

5. If number of candidates does not exceed minimum required number, directors stand
elected.
6. If number of candidates exceeds minimum required number, directors are elected in
general meeting by Voting as follows:
a. Number of votes of a member = Number of shares held x Number of directors to be
elected.
b. A member can give distribute his votes between candidates in any way he thinks
appropriate. (even all votes can be given to one person)
c. Candidates getting highest votes shall stand elected as directors.
Procedure for a company not having share capital:

Procedure for election of directors shall be mentioned in articles.
Tenure of elected directors shall be 3 years.
Circumstances in which election of directors may be declared invalid:

Court may declare election of all directors or any of them as invalid if:
 member holding 20% of more voting powers,
 apply to Court within 30 days of election, and
 prove that there has been material irregularity in the holding of the elections and matters
incidental thereto.
Fresh election of directors on request of substantial acquirer:

A person, who acquires 12.5% of more voting power in a listed company, may apply to SECP to hold
mid-term election of directors in upcoming AGM.
SECP may order company to hold fresh election in upcoming AGM if it is in the interest of capital
market, company or minority shareholders.
The person, on whose request fresh election is held, shall not dispose his shares within 1 year from
date of election of directors.
Acts of “de-fecto director”:

De-facto director means a director with defect in his appointment as director e.g. if an ineligible
person is appointed as director or a person subsequently ceases to hold office.
All acts of a de-facto director are valid. However, director shall not exercise his rights and powers as
director until defect is rectified.
LO 1.4: ELIGIBILITY TO ACT AS DIRECTOR:

Qualification /Eligibility:
Only following persons are eligible to become director of a company:
1. A natural person
2. A member, except following:
a. A person representing Govt. or a body corporate (which is member).
b. Directors nominated by creditors
c. A director who is whole-time employee of the company.
d. A chief executive

Disqualification /Ineligibility:
Following persons are disqualified to become director of a company:
1. A minor
2. A body-corporate
3. A person with unsound mind
4. A person who is Insolvent or has applied to Court for insolvency.
5. A person who has been convicted by a Court for an offence involving moral turpitude.
6. A person who lacks fiduciary behavior as declared by a Court.
7. A person who has been declared by a Court as a defaulter in repayment of a loan to financial
institution.
8. A person who is a broker or spouse of a broker or an officer/director of a brokerage house
(this disqualification is only for listed companies).
“Qualification shares are minimum number of shares required to be held by a person in his name
(either beneficially or as representative) to become director”.
Nominee directors are directors appointed by company's creditors or other special interests by virtue
of contractual arrangements.
LO 1.5: VACATION OF OFFICE BY DIRECTORS:

An elected director shall hold office for a period of three years unless he:
1. earlier resigns,
2. becomes disqualified
3. casual vacancy arises
4. is removed
5. ceases to hold office
Casual Vacancy:
A casual vacancy may be filled by directors and person appointed shall hold office for remainder
term.
Removal of Director:
A director may be removed by members in general meeting.
A resolution to remove a director shall not be passed if votes against resolution equals or exceeds:
1. minimum number of votes that were cast to elect a director in last election (in case of
elected director).
2. Total number of shares X number of directors appointed at AGM /number of directors for
the time being (in case of non-elected director i.e. first director or casual vacancy filled)
Vacation of office by the directors:

A director shall ipso-facto cease to hold his office if:
1. He becomes disqualified.
2. He is absent from 3 consecutive Board meetings or from all meetings within 3 months
(whichever is longer)
3. He accepts a prohibited loan or guarantee from the company.
4. He holds any office of profit (other than as chief executive or a legal or technical adviser or a
bank) under the company without sanction of company in general meeting.
Articles may also provide additional grounds in which office of director shall be vacated.

PART 2 – POWERS, DUTIES AND LIABILITIES OF DIRECTORS
LO 2.1: POWERS OF DIRECTORS:

A company is managed by its directors, hence, directors of a company have all powers necessary to
conduct business except for those which are required (by C.O. 1984 or articles) to be exercised by
members.
These powers include following:

1. To pay all expenses incurred in promoting and registering the company
2. To issue shares;
3. To issue redeemable capital
4. To issue debentures
5. To borrow moneys otherwise than on debentures
6. To invest the funds of the company
7. To make loans
8. To allow a director to make a contract of sales, purchases or services with company.
9. To approve annual or half-yearly or quarterly accounts as are required to be circulated to
the members
10. To declare interim dividend
11. To approve bonus to employees
12. To incur capital expenditures exceeding Rs. 1 million.
13. To incur lease obligations exceeding Rs. 1 million.
14. To dispose assets having book value of Rs. 1 lac.
15. To write-off material debtors, inventory and other assets.
16. To settle material litigations.
Directors don’t have following powers (unless given in general meeting):
1. Dispose or lease sizeable part of business.
2. Remit or give relief in repayment of outstanding debt by directors (or their relatives or
business in which they are 25% member, director or partner.
LO 2.2: LOAN TO DIRECTORS:

Loans prohibited for directors:
No company shall make loan to or give guarantee/security against loan to:
 To any director (or his spouse or minor children).
 To any partnership in which director (or his spouse or minor children) is a partner.
 To any private company in which any director is a director or member.
 To any company in which 25% or more voting power is controlled by any director(s).
 To any company whose directors/chief executives act in accordance with instructions of
any director(s).
This provision also applies on directors of holding company.
Loans allowed for directors:

Following loans are permitted:
 Any loan/guarantee/security to directors by a banking company or a private company (not
subsidiary of a public company)
 Any loan/guarantee/security by holding company to its subsidiary.

 Any loan/guarantee/security to directors who are whole-time employees of company for

following purposes (if same are approved by SECP and are granted to other employees also)
o Purchase or construction of land or building for dwelling house
o Purchase of conveyance for personal use
o Purchase of house-hold effects
o Payment of medical expenses of employee (or his spouse or minor children)
LO 2.3: DISCLOSURE OF DIRECTORS’ INTEREST:

Disclosure of interest by director:
If a director (or his spouse or minor children) has an interest in any contract/arrangement (entered
or to be entered) of the company, he shall disclose this interest in directors’ meeting.
When to disclose interest:

1. If director became interested before first time consideration of contract/arrangements, at
meeting in which contract/arrangement is first time considered.
2. If director became interested after first time consideration of contract/arrangements, at
very next meeting after he became interested.
General Notice of Directorship or Partnership:

1. A director may give a general notice that “he is a director/partner in another business and he
should be treated as interested in every contract/arrangement made with that business”.
2. Such notice shall be considered sufficient as disclosure of director’s interest.
3. Such notice shall be effective from date of notice till the end of financial year in which it is
given.
4. Interest director shall given such notice himself in directors’ meeting or shall take reasonable
steps to ensure that such notice is brought up and read at directors’ meeting.
Interested director not to participate or vote in proceedings of directors:

A director interested in a contract/arrangement shall not perform following activities concerning
contract/arrangement:
 Shall not take part in discussion.
 Shall not vote (if he votes, his vote will be void).
 Shall not be counted for quorum purposes.
This rule shall not apply:

1. On Private companies (which are neither parent nor subsidiary of a public company
2. On Contract of indemnity of director (against loss suffered by director as surety of
company)
3. If a director has interest in another company only as a nominee director and does not hold
shares more than “qualification shares”

PART 3 – CHIEF EXECUTIVE AND COMPANY SECRETARY
LO 3.1: APPOINTMENT, REMOVAL AND OTHER PROVISIONS RELATING TO CHIEF

EXECUTIVE:
"chief executive", means an individual who, subject to the control and directions of the directors, is
entrusted with the whole or substantially the whole of the powers of management of the affairs of
the company. It includes a director or any other person occupying the position of a chief executive,
by whatever name called, and whether under a contract of service or otherwise.
Appointment of Chief Executive:

First Chief Executive:
Directors of every company shall appoint a chief executive from:
 Date of commencement of business or
 15th day of incorporation.
First Chief Executive shall hold office till first AGM (or for shorter period if fixed by directors).
Subsequent Chief Executive:

Within 14 days of election of directors or casual vacancy, directors shall appoint chief executive of
company. Appointment shall not be for a period exceeding 3 years.
On expiry:
 Retiring chief executive shall be eligible for re-appointment.
 Retiring chief executive shall continue to perform his duties until his successor is appointed.
Qualification of Chief Executive:

1. Directors may appoint any person (including director) as Chief Executive.
2. Terms and conditions of Chief Executive shall be determined by directors or members in
accordance with articles of company.
3. Chief executive shall be deemed as director of company (if he is not already a director) and
shall be subject to all rights, powers and liabilities of director.
4. A person, who is ineligible to be appointed as director, is also ineligible for appointment as
Chief Executive.
Removal of Chief Executive:

Notwithstanding anything contained in the articles or in any agreement between the company and
chief executive, a chief executive can be removed:
1. By directors with 3/4th majority.
2. By special resolution of members in general meeting.
Chief executive not to engage in business competing with company's business:

A chief executive of a public company (or his spouse or minor children) shall not engage in any
business which is of the same nature and competes with the business of company (or its subsidiary
company).

LO 3.2: APPOINTMENT OF COMPANY SECRETARY AND SHARE REGISTRAR:

Company Secretary:
A listed company shall have a whole time secretary possessing following qualification:
 A member of recognized body of professional accountants e.g. ICAP.
 A member of recognized body of corporate/chartered secretaries.
 A person holding a master’s degree or law graduate from HEC recognized university and
having atleast 2 years’ relevant experience.
A single member company shall have a secretary possessing following qualification:

 Graduate from HEC recognized university.
Share Registrar:
Listed companies shall have independent share registrar possessing such qualifications and
performing such functions as maybe specified by the Commission.
SECP provides licenses to persons to work as share registrar.

Company Law – Revision Notes Chapter 26: Investments & Dividends
REVISION NOTES
CHAPTER
MUHAMMAD ASIF, ACA
ON
26
Investments & Dividends
PART 1 – INVESTMENTS OF COMPANY

1.1 INVESTMENT IN ASSOCIATED COMPANY Section 208
INVESTEMENTS OF COMPANY TO BE HELD IN ITS OWN
1.2
NAME Section 209 (1 – 6)
CLARIFICATION REGARDING HOLDING INVESTEMENTS IN Section 209 (7) (8)
1.3
NAME OF COMPANY
PART 2 – DIVIDENDS
2.1 DIVIDEND MEANING Section 249
FINAL & INTERIM DIVIDEND & TIME RESTRICTION FOR
2.2 Section 250 (1) (2)
ITS PAYMENT
2.3 RESTRICTION ON DECLARATION OF DIVIDEND Section 248 – 249
PART 3 – PAYMENT OF DIVIDENDS
3.1 DIVIDEND WARRANTS Section 250 (3)
3.2 CONSEQUENCES OF DELAY IN PAYMENT Section 251 (3)
3.3 WITHHOLDING OF DIVIDENDS Section 251 (2)

PART 1 – INVESTMENTS OF COMPANY
LO 1.1: INVESTMENT IN ASSOCIATED COMPANY:

A company shall not invest in any of its associated company/undertaking, unless
1. Company is authorized by special resolution which indicates terms and conditions of
investment, and
2. Return on loan is not less than the borrowing cost of investing company.
Any change in terms and conditions of investment shall be made only by special resolution.
Consequences of non-compliance:
If any default is made in above conditions:
 every director responsible for default shall be liable to fine upto Rs. 10 million and
 directors shall jointly be liable to reimburse to company loss sustained by it.
Associated Company/Undertaking:
Companies/Undertakings are associated if:
1) An owner, partner, director or shareholder of 20% voting rights in one
company/undertaking is also the owner, partner, director or shareholder of
20% voting rights in another company/undertaking.
2) Companies are under common control or management.
3) One is the subsidiary of another.
However, shares owned by government and directors nominated by government are

not considered to determine status of Associate.
Investment:
‘investment’ shall include equity, loans, advances or any amount, which is not in the
nature of normal trade credit.
LO 1.2: INVESTEMENTS OF COMPANY TO BE HELD IN ITS OWN NAME:

All investments of a company shall be owned and held by a company in its own name.
Exceptions:
1. A company may register its share in the name of a director, nominated by it in another
company, upto the nominal value of qualification shares.
2. A company may register its shares in a subsidiary company to a nominee person to ensure
that number of members in subsidiary company does not fall below minimum number.
3. A company may deposit shares or debentures with a bank for collection of dividend or
interest.
4. A company may deposit shares or debentures with a scheduled bank or financial institution
approved by Commission to facilitate transfer. If shares are not transferred within 6
months, securities will be again held by company in its name.
5. A company may deposit shares or debentures with any person as security for repayment of
loan of company or for performance of any obligation of company.

6. A company may deposit shares or debentures in the name of central depository.

7. Investments made by an investment company.
LO 1.3: CLARIFICATION REGARDING HOLDING INVESTEMENTS IN NAME OF

COMPANY:
Register for investments not held by company in its own name:
If any investment made by company is not held in its own name, company shall maintain a “register
for investments not held by company in its own name”. Following shall be entered in Register:
1. nature, value and other particulars to identify such shares or securities
2. bank or person in whose name or custody such shares or securities are held.
This register shall be open for inspection by any member or creditor of company without charge for
atleast two business hours in a day.
PART 2 – DIVIDENDS
LO 2.1: DIVIDEND MEANING:

A company makes payment to its shareholders in three ways:
1. Dividend
2. Reduction in share capital
3. Distribution in winding up
“Dividend is any payment by a company to its shareholders out of distributable profits; whether it
is called Dividend, Bonus or any other name.”
LO 2.2: FINAL & INTERIM DIVIDEND & TIME RESTRICTION FOR ITS PAYMENT:
Once a dividend has been declared, Chief Executive of the company is responsible to pay it within
30 days of its declaration.
Final Dividend:
 Final Dividend is recommended by Directors but approved/declared by Members in AGM.
 Members cannot approve dividend in excess of amount recommended by Directors.
Interim Dividend:
Interim dividend is approved by Directors, and it is deemed to have been declared on the date of:
 commencement of closure of share transfer books (i.e. register of members) to determine
entitlement of dividend or
 approval of dividend by directors (if register of members is not closed for such purpose)

LO 2.3: RESTRICTION ON DECLARATION OF DIVIDEND:

Dividend shall not be declared/distributed from
 Capital
 Capital profit (e.g. profit from sale of immovable property or assets of capital nature) ***
 Revenue profit which is unrealized (e.g. revaluation of investment property)
*** However, profit from sale of immovable property or assets of capital nature can be distributed as
dividend if it is ordinary business of the company and company has set-off profit against losses from
such assets.
PART 3 – PAYMENT OF DIVIDENDS
LO 3.1: DIVIDEND WARRANTS:

A dividend is paid by company via:
 Dispatch of dividend warrants (similar to crossed cheques) through registered post/courier
service unless shareholder requires otherwise in writing, or
 Direct credit in shareholder’s bank account (if shareholders opts so by submitting Dividend
Mandate to Company).
LO 3.2: CONSEQUENCES OF DELAY IN PAYMENT:

If dividend is not paid within 30 days of its declaration, chief executive shall be punishable with:
 Imprisonment upto two years and
 Fine upto one million rupees and
 Disqualified for 5 years as chief executive/director for any company
LO 3.3: WITHHOLDING OF DIVIDENDS:

Once a dividend has been declared, Chief Executive of the company is responsible to pay it within
30 days of its declaration. However, in following situations, payment of dividend can be delayed
without an offence:
 When there is a dispute between shareholders regarding right to receive dividend.
 When the dividend is lawfully set-off by the company against sum due from shareholders.
 When a shareholder has given instructions to company regarding payment of dividend and
those instructions cannot be complied with.
 When dividend cannot be paid because of operation of law.
 When it is proved that failure to pay dividend or post warrants was not due to fault of
company.
However, an application to withheld/defer the dividend is made to SECP within 45 days of

declaration of dividend; and is permitted by SECP. However, SECP will give opportunity of being
heard to affected parties.

Company Law – Revision Notes Chapter 27: Accounts and Audits
REVISION NOTES
CHAPTER
MUHAMMAD ASIF, ACA
ON
27
Accounts and Audits
PART 1 – BOOKS OF ACCOUNTS

1.1 BOOKS OF ACCOUNTS TO BE KEPT BY A COMPANY
1.2 ANNUAL ACCOUNTS
1.3 AUTHENTICATION OF ACCOUNTS
1.4 FILING OF ACCOUNTS
PART 2 – DIRECTORS’ REPORT
2.1 DIRECTORS’ REPORT
PART 3 – AUDIT
3.1 APPOINTMENT AND REMUNERATION OF AUDITORS
QUALIFICATION AND DISQUALIFICATION OF
3.2
AUDITORS
AUDITOR’S RIGHT TO ACCESS THE RECORDS AND
3.3
INFORMATION
3.4 AUDITORS’ REPORT

PART 1 – BOOKS OF ACCOUNTS
LO 1.1: BOOKS OF ACCOUNTS TO BE KEPT BY A COMPANY:

Books of Accounts:
A company is required to keep following books of accounts (for atelast 10 years)
 all cash received and expended alongwith matters to which these relate.
 all sales and purchases of goods by the company.
 details relating to manufacturing cost (for manufacturing companies).
 all assets of the company
 all liabilities of the company.
Liquidator of the company shall also maintain above books of accounts during winding up.
Keeping the books:

1. Books of accounts are kept at Registered office of the company or at any other place
provided:
̶ Board Resolution is passed and
̶ Registrar is intimated within 7 days of resolution
2. If a company has branches, books of accounts with respect to branch may be maintained at
branch provided summarized returns are sent at registered office (or any other place for
this purpose) within 3 months.
Inspection of books:
Directors can inspect books of accounts during business hours.
Members cannot inspect books of accounts unless:
 Board resolution is passed or
 Members pass resolution in general meeting.
LO 1.2: ANNUAL ACCOUNTS:

Presentation of annual accounts:
Listed companies are required to prepare following financial set of statements annually:
1. Balance-sheet
2. Profit and loss account (or income and expenditure account in case of not-for-profit company)
3. Cash flow statement
4. Statement of changes in equity
5. Notes to the accounts (including accounting policies)
Unlisted companies are required to prepare following financial set of statements annually:
1. Balance-sheet
2. Profit and loss account (or income and expenditure account in case of not-for-profit company)
3. Notes to the accounts (including accounting policies)
These financial statements are to be prepared:

 In case of first accounts, within 18 months of incorporation.

 In case of subsequent accounts, within 4 months from close of financial year. However,
extension in this case may be granted by:
̶ SECP in case of listed company.
̶ Registrar in case of unlisted company.
Period covered by financial statements shall not be more than 12 months unless permission from
Registrar is obtained.
These accounts shall accompany auditor’s report and directors’ report and shall be sent to every
member 21 days before meeting. A copy shall also be kept at registered office of company for
inspection by members.
LO 1.3: AUTHENTICATION OF ACCOUNTS:

Power to approve:
Accounts shall be:
 approved by Board of Directors and
 signed by the chief executive and at least one director. However, if chief executive is not in
Pakistan, accounts shall be signed by two directors alonwith a statement with accounts that
chief executive in not in Pakistan.
LO 1.4: FILING OF ACCOUNTS:

Within 30 days of AGM, following number of copies of accounts (along with auditor’s report and
directors’ report) shall be filed with Registrar.
 3 in case of listed company.
 2 in case of unlisted company.
If general meeting does not consider accounts, or does not adopt accounts or is adjourned, this fact
shall be annexed to accounts.
These requirements shall not apply to a private company having paid up capital of less than 7.5
million rupees.
PART 2 – DIRECTORS’ REPORT
LO 2.1: DIRECTORS’ REPORT:

Contents for every directors’ report:
With every balance sheet, directors shall attach directors’ report with respect to:
 state of the company’s affairs
 amount of dividend (if any)
 amount to be transferred to reserves (if any)
Additional contents for directors report of public company:

Following shall also be disclosed in case of public company (or private company which is subsidiary
of public company):
 material changes affecting balance sheet between date of balance sheet and date of auditor’s
report.

 Material changes in nature of business of company or its subsidiaries or companies in which

company has interest.
 explanation regarding any modification in the auditor’s report;
 pattern of shareholding
 name and country of incorporation of holding company (if holding company is incorporated
outside Paksitan)
 Earnings per share
 reasons for incurring loss and a reasonable indication of future prospects of profit (if any)
 information about defaults in payment of debts, if any
Authentication of directors’ report:

Directors’ report shall be signed:
 by chairman of the directors or
 by chief executive (if chief executive is authorized in this behalf by directors) or
 by chief executive and one director (if chief executive is not authorized int his behalf by
directors)
PART 3 – AUDIT
LO 3.1: APPOINTMENT AND REMUNERATION OF AUDITORS:

Appointment and removal of auditors and their remuneration:
Type of Appointment Appointment Authority

1. Directors (within 60 days of incorporation)
2. Members (if directors don’t appoint first auditor within 60 days of
First Auditor incorporation)
3. SECP (if directors/members don’t appoint auditor within 120 days
of incorporation)
1. Members in each AGM.
Subsequent Auditor
2. SECP (if no auditor is appointed by members in AGM)
1. Directors (within 30 days of occurrence of casual vacancy)
Casual Vacancy
2. SECP (if casual vacancy is not filled by directors within 30 days)
1. SECP
Vacancy if auditor
(auditor can be removed during audit only by members through special
removed before AGM
resolution)
Important Points
1. Tenure of auditor appointed in each case is from date of appointment till the conclusion of next
AGM.
2. Person appointing the auditor fixes the remuneration of auditor.

Appointment of Subsequent Auditor:
Notice to Registrar:
Company is required to inform the Registrar within 14 days of appointment, retirement or removal.
LO 3.2: QUALIFICATION AND DISQUALIFICATION OF AUDITORS:

Qualification Criteria:
Audit of a “Public company” or “Private company which is subsidiary of a public company” or
“Private company with paid up capital of three million rupees or more” shall be conducted only by:
 A Chartered Accountant or
 A firm of Chartered Accountants in firms’ name (provided all partners of firm are chartered
accountants)
(Chartered Accountant means within the meaning of the Chartered Accountants Ordinance, 1961)
Disqualification Criteria:
Disqualification Criteria Ambit of Disqualification

If auditor (i.e. sole-practitioner or any partner in a firm) or his 1. Relevant Company.
spouse or minor child holds shares in a company. However, such a 2. Its associated companies.
person can be appointed if he discloses the fact at time of
appointment and disposes shares within 90 days of appointment.
If auditor: 1. Relevant Company.
 is indebted to the company. 2. Its Holding company.
However following are not considered debt in this regard: 3. Its Subsidiary companies,
 sum payable up to Rs. 500,000 payable to a credit card issuer 4. Its Holding company’s
 sum payable to a utility company outstanding for 90 day other subsidiaries.
 is or was an employee (or officer or director) of the company in
last 3 years.
 is a partner or employee of an employee (or officer or director)of
the company.
 is Spouse of a director.
 is a Body corporate.

Important Points
1. All conditions of disqualification apply at time of appointment as well as after appointment.
LO 3.3: AUDITOR’S RIGHT TO ACCESS THE RECORDS AND INFORMATION:

Rights during audit
1. Right of:
a. access to books, accounts and vouchers of company (if any branch of company is
outside Pakistan, auditor shall be allowed access to copies of books of accounts).
b. requiring necessary information and explanation necessary to perform duties.
2. Right to receive notices of general meetings, attend general meetings and speak at general
meetings on audit related matters.
3. Right to demand and receive remuneration.
Rights on removal:
1. Right to receive notice of removal
2. Right to make representation to members.
3. Right to attend and speak at general meeting
LO 3.4: AUDITORS’ REPORT:

It is auditor’s duty to issue audit report to members.
Auditor’s report shall state following matters:

1. Whether or not they have obtained all the information and explanations which to the best of
their knowledge and belief were necessary for the purposes of the audit
2. Whether or not in auditor’s opinion proper books of accounts as required by this Ordinance
have been kept by the company.
3. Whether or not in their opinion the balance sheet and profit and loss account together with
the notes thereon:
 have been drawn up in conformity with the Companies Ordinance, 1984, and
 are in agreement with the books of accounts and
 are further in accordance with accounting policies consistently applied.
4. Whether or not in their opinion the expenditure incurred during the year were for the
purpose of the company’s business.
5. Whether or not in their opinion the business conducted, investments made and expenditure
incurred during the year were in accordance with the objects of the company.
6. Whether or not in their opinion zakat deductible at source under the Zakat and Usher
Ordinance, 1980 (XVIII of 1980), was deducted by the company and deposited in the Central
Zakat Fund established under section 7 of that Ordinance.
7. whether or not in their opinion, the said accounts give the information required by this
Ordinance and give a true and fair view of company’s affairs and its profit or loss (and
changes in financial position and sources/application of its funds, if applicable)

Company Law (Complete Revision Notes) by Muhammad Asif, ACA

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Company Law – Revision Notes Chapter 19: Company

LO # LEARNING OBJECTIVE REFERENCE

PART 1 – THE FEATURES OF A COMPANY

1 Muhammad Asif, ACA

PART 1 – THE FEATURES OF A COMPANY

LO 1.1: COMPARISON OF COMPANIES WITH OTHER FORMS OF BUSINESS:

CONCEPT REVIEW QUESTION

LO 1.2: MEANING OF SEPARATE LEGAL PERSONALITY:

Separate Legal Entity Concept:

Effects of Separate Entity Concept:

2 Muhammad Asif, ACA

4. A company can sue and be sued in its own name.

CONCEPT REVIEW QUESTION

LO 1.3: MEANING OF LIMITED LIABILITY:

Liability of Members of company:

Limited Liability Concept:

Liability of a company itself and its directors:

CONCEPT REVIEW QUESTION

LO 1.4: TRANSFER OF OWNERSHIP AND PERPETUAL SUCCESSION:

PART 2 – TYPES OF COMPANIES

Types on the basis of Liability:

Other Types of Companies:

CONCEPT REVIEW QUESTION

LO 2.1: DEFINITION OF COMPANY AND BODY CORPORATE:

4 Muhammad Asif, ACA

LO 2.2: COMPANIES LIMITED BY SHARES, COMPANIES LIMITED BY GUARANTEE AND

Company Limited by Shares:

Company Limited by Guarantee:

CONCEPT REVIEW QUESTION

LO 2.3: PRIVATE COMPANY AND PUBLIC COMPANY:

Legal Privileges and Exemptions available to a Private Company:

5 Muhammad Asif, ACA

a. obtain “certificate of commencement of business” after incorporation.

Consequences of default in complying with restrictive conditions:

CONCEPT REVIEW QUESTION

LO 2.4: LISTED COMPANY AND UNLISTED COMPANY:

6 Muhammad Asif, ACA

CONCEPT REVIEW QUESTION

LO 2.5: HOLDING COMPANY AND SUBSIDIARY COMPANY:

CONCEPT REVIEW QUESTION

PART 3 – ASSOCIATION NOT FOR PROFIT

Conditions for grant of license as “Associations Not for Profit”:

7 Muhammad Asif, ACA

Privileges to an associations not for profit:

CONCEPT REVIEW QUESTION

PART 4 – SECURITIES & EXCHANGE COMMISSION OF PAKSITAN

LO 4.1: THE COMMISSION:

Functions and Powers of SECP:

8 Muhammad Asif, ACA

Functions and Powers of Registrar:

Court/Company Court/Jurisdiction of Court:

9 Muhammad Asif, ACA

LO # LEARNING OBJECTIVE REFERENCE

PART 1 – REGISTRATION OF A COMPANY

1 Muhammad Asif, ACA

PART 1 – REGISTRATION OF A COMPANY

LO 1.1: OBLIGATION TO BE REGISTERED AS A COMPANY:

Consequences of illegal association:

LO 1.2: PROCESS OF REGISTRATION/INCORPORATION:

2 Muhammad Asif, ACA

If registrar is satisfied that purpose of forming a company is legal and bona-

Effect of Registration of Memorandum/Certificate of Incorporation:

If registration of Memorandum is refused:

PART 2 – NAME OF COMPANY